United States v. Maddux

917 F.3d 437

UNITED STATES of America, Plaintiff-Appellee,

v.John MADDUX, Jr. (16-6368); Christina Carman (16-6370); Julie Coscia (16-6371); Michael E. Smith (16-6726), Defendants-Appellants.

Nos. 16-6368/6370/6371/6726

United States Court of Appeals, Sixth Circuit.

Argued: May 3, 2018

Decided and Filed: February 26, 2019

ARGUED: Kent Wicker, DRESSMAN BENZINGER LA VELLE, Louisville, Kentucky, for Appellant in 16-6368. Nicole S. Elver, DRESSMAN BENZINGER LA VELLE, Louisville, Kentucky, for Appellant in 16-6370. Gregory A. Napolitano, LAUFMAN & NAPOLITANO, LLC, Cincinnati, Ohio, for Appellant in 16-6726. John M. Pellettieri, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C., for Appellee. ON BRIEF: Kent Wicker, DRESSMAN BENZINGER LA VELLE, Louisville, Kentucky, for Appellant in 16-6368. Nicole S. Elver, DRESSMAN BENZINGER LA VELLE, Louisville, Kentucky, for Appellant in 16-6370. Gregory A. Napolitano, LAUFMAN & NAPOLITANO, LLC, Cincinnati, Ohio, for Appellant in 16-6726. John M. Pellettieri, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C., Laura K. Voorhees, UNITED STATES ATTORNEY'S OFFICE, Lexington, Kentucky, for Appellee. Gary W. Lanker, LAW OFFICE OF GARY W. LANKER, Memphis, Tennessee, for Appellant in 16-6371. Steven D. Jaeger, THE JAEGER FIRM, PLLC, Erlanger, Kentucky, Candace Crouse, PINALES, STACHLER, YOUNG, BURRELL, & CROUSE CO. LPA, Cincinnati, Ohio, for Amicus Curiae in 16-6370.

Before: SUHRHEINRICH, GIBBONS, and KETHLEDGE, Circuit Judges.

KETHLEDGE, Circuit Judge.

The defendants here took part in a decade-long scheme surreptitiously to sell tax-free cigarettes, thereby defrauding federal, state, and local governments of more than $ 45 million in tax revenue. The federal government eventually uncovered the scheme and charged them with 34 counts of various crimes, including conspiracy to commit mail or wire fraud in violation of 18 U.S.C. § 1349, conspiracy to launder money in violation of 18 U.S.C. § 1956(h), and conspiracy against the United States in violation of 18 U.S.C. § 371. One of the defendants, John Maddux, pleaded guilty to 29 counts. The other three—Christina Carman, Julie Coscia, and Michael Smith—all went to trial, where a jury convicted each of them on various counts. These three now challenge their convictions on several grounds. Maddux, Carman, and Coscia also challenge their sentences, arguing that the district court erred when calculating their recommended sentences under the Sentencing Guidelines. We reject all these arguments and affirm.

I.

Cigarettes are heavily taxed. Federal, state, and local governments each add their own layer of taxation, which increases the price dramatically from factory to shelf. In some places, a pack sells for $ 13 even though manufacturers sell it for around $ 5. Beginning in 2003, John Maddux, his wife Christina Carman, and their now-deceased business partner, Glenn Herndon, began selling cigarettes directly to consumers, bypassing governmental taxing authorities. This plan enabled them to sell untaxed cigarettes at a steep discount.

The group took several steps to conceal their sales from the federal, state, and local governments. Many if not most of their customers used credit cards to pay for the cigarettes; and Maddux told the company that processed those sales that he and Carman ran a business called "DSL Ever-Ready Specialty Glass," which sold "glass for homes and auto." In fact, their companies did business under the names of "Your Kentucky Tobacco Resource" and "ESR II." Maddux also told his employees to use email addresses with domain names that disguised the nature of the company's business, like "@asrhomedecor.com." And Maddux arranged for a hotel employee to tip him off whenever officials from the Kentucky Department of Revenue came to town, so that he and Carman could avoid inspections.

Maddux and Carman also failed to report their sales to state authorities as required by federal law. The Jenkins Act, 15 U.S.C. § 376(a) (2006), required cigarette sellers, like Maddux and Carman, to file a monthly report detailing (among other things) the names and addresses of any customers who had purchased untaxed cigarettes. This report would enable state and local governments to collect the taxes owed by each customer. If a seller failed to report his sales, the Act imposed a strict-liability misdemeanor punishable by six months' imprisonment. See 15 U.S.C. § 377 (2006). Maddux and Carman never filed these reports, and made sure their customers knew as much. Their customers in turn stayed silent about their purchase of untaxed cigarettes; and so the taxing authorities never knew about them. Through this plan, Maddux and Carman converted monies that should have been revenue for the taxing governments into profits for themselves.

Soon Maddux and Carman recruited two other cigarette sellers, Julie Coscia and Michael Smith. Coscia ran "Cigarette Girl," a company she incorporated as "ASC Properties" to stay—as she put it—"under the radar." Like Maddux and Carman, she gave a phony description of her business to the company that processed her transactions, stating that she sold mail-order gifts. Similarly, Smith ran "Payless Cigs," which he incorporated as "Payless Enterprises." He likewise told his credit-card processing company that he sold gifts, novelties, and souvenirs. Neither Coscia nor Smith reported their sales as required by the Jenkins Act.

In 2010, Congress passed the Prevent All Cigarette Trafficking Act, which imposed further restrictions on the sale of untaxed cigarettes. See Pub. L. 111-154, 124 Stat. 1087. The Trafficking Act prohibits shipment of cigarettes through the United States Postal Service, requires packages containing cigarettes to be labeled as such, and directs "delivery sellers"—i.e. , sellers who take orders directly from consumers or ship cigarettes by common carrier—to comply with the tax laws in the state or locality where the cigarettes are shipped. See 15 U.S.C. § 376a(a)(3). The Act also makes it a felony, punishable by three years' imprisonment, knowingly to refuse to report cigarette sales. See 15 U.S.C. § 377(a).

Maddux, Carman, Coscia, and Smith recognized that the Trafficking Act made their scheme more difficult to run within the United States, so they converted it to an offshore operation. Rather than ship cigarettes through Tobacco Resource, they began shipping through Maddux and Carman's other company, ESR II, which used suppliers in Ukraine, Israel, and Kyrgyzstan, among other places. The defendants relayed orders of cigarettes to these suppliers, who shipped them directly to customers. To pay the suppliers, Coscia and Smith wired money to Maddux and Herndon, who then wired money to several foreign bank accounts located in Austria, Latvia, and Cyprus. The suppliers then withdrew money from these accounts and shipped cigarettes to the customers in unmarked boxes.

No one—not the defendants, the suppliers, or the customers—ever declared the cigarettes to United States Customs and Border Protection, paid the federal excise taxes, or reported the sales to state or local governments. Yet officials from customs and the postal service often intercepted cigarettes mailed by the overseas suppliers. In response, Maddux and Herndon discussed disguising the boxes to conceal that they contained cigarettes.

Eventually, the federal government caught up to Maddux, Carman, Coscia, and Smith. In 2014, a federal grand jury indicted them on 34 counts. All told, the government alleged that they had deprived taxing authorities of over $ 45 million in tax revenue. Maddux pleaded guilty to 29 counts, including several fraud and money-laundering charges. See 18 U.S.C. §§ 1349, 1956(h), 1957, 371, 1001. Coscia, Smith, and Carman went to trial.

The jury convicted all three. Coscia and Smith were convicted on several counts of conspiracy to commit mail or wire fraud (four for Coscia and two for Smith) and several counts of conspiracy to launder money (three for Coscia and one for Smith). See 18 U.S.C. §§ 1349, 1956(h). Carman was convicted on two counts—conspiracy to commit mail and wire fraud and conspiracy to launder money—and acquitted on 19 others. See 18 U.S.C. §§ 1349, 1956(h). On a post-trial motion, however, the district court also acquitted Carman of conspiracy to launder money.

At sentencing, the defendants objected to the district court's calculation of the tax revenue lost because of their fraud. The district court overruled those objections, finding Maddux responsible for about $ 48 million in lost taxes, Carman for $ 22.8 million, and Smith for $ 2.95 million. The district court sentenced Maddux to 120 months' imprisonment, Carman to 60 months, Smith to 42 months, and Coscia to 36 months—and then entered judgments accordingly. Each of the defendants then filed notices of appeal. Months later, the district court also ordered Carman to forfeit about $ 17.5 million. (Carman filed a separate notice of appeal from that order, which we will review in a separate opinion.)

II.

A.

Carman challenges the sufficiency of count one of the indictment, which alleged conspiracy to commit mail and wire fraud against state and local governments. We review the sufficiency of the indictment de novo. See United States v. White , 846 F.3d 170, 174 (6th Cir. 2017). An indictment is sufficient (in the sense of stating an offense, see Federal Criminal Rule 12(b)(3)(B)(v) ) if it alleges conduct satisfying every element of the charged offense. United States v. Olive , 804 F.3d 747, 753 (6th Cir. 2015).

The elements of a conspiracy offense are the existence of "an agreement between two or more persons to act together in committing an offense, and an overt act in furtherance of the conspiracy." United States v. Faulkenberry , 614 F.3d 573, 584 (6th Cir. 2010) (citation and internal quotation marks omitted). Here, count one alleges that, from 2008 to 2010, Carman and others agreed to a scheme by which they sold untaxed cigarettes while failing to report those...